Moody's Investors Service is sowing the seeds of growth for increased issuance of European conduit paper with its unveiling of a new "post-review status" for qualifying programs.
Tulip Funding Corp. is the first program to be granted the status by Moody's. "Tulip may now purchase new assets without first obtaining a ratings confirmation from Moody's," said one source at the agency.
Up to $5 billion of U.S. and European commercial paper is offered under Tulip Funding with the collateral consisting mainly of commercial and consumer obligor financial assets purchased from European and other corporate sellers. ABN AMRO acts as program administrator.
Under the new status, qualifying multiseller ABCP conduits are allowed to add eligible investments without having to go to the review committee first, functioning similarly to its U.S. counterpart.
In order to qualify, programs must first adhere to a series of stipulations provided by the rating agency, which primarily revolves around set terms, agreed to by Moody's and the issuer. "The primary condition for a TULIP transaction to benefit from post-review status is that the transaction documents must be executed in an agreed form," explained Edward Manchester, a Moody's analyst following the situation. "This ensures that the transaction will be fully supported."
The TULIP transactions that deviate from the agreed form will continue to be executed on a prior review basis. While there has been a considerable amount of interest expressed by other multiseller programs in gaining post-review status, Moody's emphasizes that part of the qualification process requires that the program administrator demonstrate a solid history of ability and experience. For Tulip Funding, the rating agency said, "Through its management of TULIP and nine other ABCP programs, Moody's believes ABN AMRO has clearly demonstrated the necessary competence."
Going forward, the profile of programs most likely to qualify for the post review status would be European conduits with a frequency of small-value transactions, for which efficient transaction execution is especially important.